California’s Prop 30 Could Boost Economy

Nevada’s pitch to business owners just became a little more persuasive with the recent passage of Proposition 30, a $6-billion tax increase targeting high-income Californians.

Californians voted in the tax to ward off deep cuts in education and help balance the state’s budget, but the true beneficiary of the tax increase over the long term may be Northern Nevada. The economic pitch that Northern Nevada has been making — a business-friendly climate, no state income tax, less regulation — is suddenly being made even more striking by the up-to-3-percent increase in income tax on high-income Californians enacted by Prop. 30.

While no one expects the passage of Prop. 30 to open the floodgates and release a torrent of business relocation to Nevada, it certainly could play an important role in the decision-making processes for certain types of business owners as they plan ahead for business development, growth or relocation:

Startups: For true startups, the income-tax issue is not as high a priority because a company in the startup stage is investing in the foundations of its company and not generating much revenue. But if you are putting down roots as a business and can choose any community in which to launch your idea, savvy start up leaders will look for a location where their business can develop and expand. Prop. 30 sends a clear tax message to startups about the tax environment they will have to deal with when they convert their startup to a successful company.

Established businesses: For some businesses that have struggled through the recession and are seeing their revenue disappear into high rent, high taxes and high labor costs, relocation may be a real option. For some business owners, Prop. 30’s $6-billion tax hike may signal more than just a 3-percent increase in taxes, it may also signal an uncertain business environment where taxes may continue to rise. Nevada’s stable and business-friendly tax environment could be attractive to businesses that are barely making money in California, or businesses that desire a more predictable and affordable place to do business. Nevada has no income tax, no corporate tax and no franchise tax.

Business owner relocation: Northern Nevada’s proximity to Silicon Valley also makes it a popular place for business owners to relocate, even if their business remains in California. For the very wealthy, a permanent residence in Nevada could mean huge personal tax savings. Advancement in mobile communication and computer technology allows business owners to work seamlessly with co-workers and employees from any location. Some business owners may find Prop. 30 is the added incentive to buy a permanent residence in Nevada. This business owner migration not only boosts the housing market and the local economy, it also brings entrepreneurs into Northern Nevada with a track record of business success. Their next business, or their next business expansion, may very well be located in the community where they now live.

Prop. 30 was put on the California ballot to fix California’s significant budget deficit. In the long term, it also may help boost Nevada’s economy, by advertising to California businesses the advantages of Nevada.

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